📐 Risk/Reward: 1.19
This is very low risk/reward, which means that if you risk losing $100, you can earn as little as $119 excluding fees. Accordingly, a profit can be obtained only if most of the signals turn out to be accurate. This means that the risk of losing your money is too high and in such cases it is better to skip such a deal.
Some traders don’t mind the low risk/reward ratio in a trade as long as the trade will go their way and they win the trade. But the problem of this is always in the result of your future trades if you hit stop loss in the initial ones. With this risk/reward ratio, it will take you more than five trades to win before you can recover one loss using same risk/reward ratio in the next five trades to take. Risk/reward ratio of 2.0 is quite okay and the minimal I would target for a trade, only in a worst case I might settle for less than that and not less than 1.5 risk/reward.
This statement highlights the fatal flaw of a trading approach that doesn't focus on the risk/reward ratio. Relying on a winning streak to offset significant losses is a highly risky strategy. A savvy trader understands that risk management is a key component of long-term success. Setting a minimum risk/reward ratio of 2.0 is a disciplined rule that ensures every win has the potential to offset potential losses. Without this rule, a trader will be under constant pressure to win consistently. A single stop-loss can wipe out a string of hard-earned wins. Therefore, focusing on a healthy risk/reward ratio is a crucial foundation for building a robust and sustainable trading strategy.